Everyone on Monday was in a frenzy, funk or fit of fear. The stock market dropped 617 points. Pundits on right, left and center (fewer every day) predicted the sky was falling. A trade war with China will end the world as we know it. Truth is somewhat different, but then truth does not sell papers.
Here is the truth – in ten facts.
First, the US trade balance with China, that is, the balance of imports to exports in billions – is out of whack. By way of example, from 2012 to 2018, it bounced from $315 to $375 billion dollars; they were taking that much more from us. Not close since 1985, the imbalance rose to $419 billion in 2018 – in favor of China. We sold them $120 billion, while they sold us $539 billion. So, the President has said “enough.” He is right – we are off balance.
Second, the Chinese have made massive investments globally, in the famous “Belt and Road” investment initiative – seeding physical and cyber infrastructure across Asia, Africa, and even Europe. Aims are mixed, but plainly to dominate. Many suspect – with reason – China’s motives are not purely economic, but political. Trump is right, political caution is in order.
Third, China has violated many international norms – some of which helped generate that massive trade imbalance, from gaming the World Trade Organization to currency manipulation (watch just ahead), treating Chinese capital on foreign soil as foreign production, forcing disgorgement of intellectual property, closing markets to some US services, putting tariffs on goods sold in open markets, penetrating US companies and government with cyber- attacks (including OPM), and making law enforcement difficult. So, a fair player? Maybe not.
Fourth, while some argue the point, their military activities have been unprecedented, provocative and unlawful – endangering global security. Their activities in space – including anti-satellite weapons – are in violation of law. On earth, they modernize massive weapons systems, building and militarizing artificial islands in the South China Sea, threatening US and international shipping, work to militarize foreign infrastructure, and continue to threaten Taiwan, occasionally other actors. They too have carrot and stick, and stick is getting bigger.
Fifth, they are egregious offenders of human rights, with a one-child policy that killed tens of millions of children annually via infanticide and late abortions, usually girls. They execute more than 2,400 citizens annually, many for political reasons. They have no appeal, and sometimes just swallow people, like the former head of Interpol, who has vanished. So, rights violations flash.
Sixth, on other fronts, Trump – like no one before him – has said call a spade a spade. He has called China out for failure to enforce sanctions on North Korea and treatment of their people, much as Reagan called out predecessors of Gorbachev – although with less directness. China has at least a million citizens trapped in “reeducation camps” in the Northwest, bleaching out their Muslim religious faith; they also persecute Christians.
Seventh, realism is in order on what Trump has done. What is he asking? He has put 25 percent tariffs on goods Americans can buy from more reasonable partners, because China has not been willing to place agreed provisions in law. Trump does not want a Communist press release. What is that worth? He wants a legally enforceable, structural change in the trade. Reasonable? Yes.
Eighth, is the world coming to an end with China imposing tariffs (read: a tax) on $60 billion on US goods – after Trump put tariffs on $200 billion in Chinese goods? No, this is transactional. This is negotiation by tariff, each taking measure of the other’s seriousness. More to the point, the Chinese had to impose something to save face, even if later codify.
Ninth, the President knows other issues are at stake – one is ending America’s fentanyl crisis, as all the fentanyl comes from China. He has made the point repeatedly, and we might see some mention in the final deal. Another big issue is primacy on 5-G new communications grid, but that is a longer-term issue.
So, what is the endgame? The sky is not falling. A deal might not happen, and if not, life goes on. We might even see internal unrest in China. America’s economy is resilient. The likeliest endgame is simpler, more obvious. What is wanted by Trump is a step forward that is permanent, no more backsliding. Wanted by China are adjustments that make trade stable, growth sustained. Both are more likely to get what they want than not.
Do not expect media to give Trump credit for triggering intergenerational rebalancing, better trade and security terms. That will come when Americans see, after all, good things do take time – and the President’s resolve paid off. Until then, expect to hear the sky is falling. It sells papers, right?